Tax Reform

A capital gains tax cut is the solution to both good times and bad: If the economy is doing well, we should cut the tax to reward virtuous job creators; if it’s doing poorly we should cut the tax to free up brutally imprisoned capital for more job creation. You see, standard Republican trickle-down economic theory says the way to achieve prosperity is to cut taxes for the rich, who in their beneficence will allow some of their windfall to trickle down to the commoners.

During a press briefing on Monday, the president made sure everyone knew how great the economy is doing, noting that “We’ve had some tremendous success already if you look at what’s happening with the stock market.” Then, he went on:

But the — we’re looking at also considering a capital gains tax cut, which would create a lot more jobs. So we’re looking very seriously at a capital gains tax cut and also at an income tax cut for middle-income families. We’re looking at expanding the tax cuts that we’ve already done, but specifically for middle-income families, and you’ll be hearing about that in the upcoming few weeks, and I think it’ll be very exciting.

So, a capital gains tax is going to be — a lot of — a lot of people put to work, and it would be a cut in the capital gains tax and also a cut in the middle-income income tax.

No one had any idea what kind of middle-class tax cut he was talking about, and Trump often says he is “looking at” something when he really isn’t. (In fact, he often answers “We’re looking at that very strongly” when asked a question on policy, which usually translates as “I have no idea what that is about but I’m going to pretend it’s something I’m deeply informed and active on.”)

In this case, however, the administration really is “looking at” a capital gains tax cut, or at least hoping for it. Treasury Secretary Steven Mnuchin told reporters on Wednesday that one of the key differences between Trump and former vice president Joe Biden is that the presumptive Democratic nominee wants to raise capital gains taxes while Trump wants to lower them. “While we recover, we should reduce those capital gains,” Mnuchin said.

But cutting the tax would require legislation, and with Democrats controlling the House, that won’t happen. Some believe, however, that the president might have the authority to order the Treasury Department to index capital gains to inflation, which would be the same as a cut. For instance, if you bought a stock 10 years ago for $100 and sold it for $150 today, you’d pay taxes not on the $50 profit but on $150 minus the inflation-adjusted value of $100 from 10 years ago. Which just happens to be $149.94, meaning you’d have to pay taxes on only $0.06.

You can see why that prospect would make Republicans’ hearts go aflutter. According to one analysis, 63 percent of the benefits of indexing capital gains to inflation would go to the richest one-tenth of one percent of Americans.

You almost have to admire Republicans’ commitment to principle. The election is less than three months away, the country is in the grip of a recession, and they’re proposing a tax cut for the wealthy. It’s not because some poll or focus group told them it was a good idea politically, because it’s an absolutely terrible idea. They’re doing it because they believe in it.

And Mnuchin is right: Biden does, indeed, want to raise the capital gains tax. In fact, Biden’s economic plan is probably more liberal than you realize, and on investment income, it embodies an idea some of us have been shouting about for years: We should just tax all income at the same rate. Instead of giving preferential treatment to investment income as we do now, we should tax it the same as wage income. There’s no reason that the money you make when your money makes you more money should be taxed at a lower rate than the money you earn by working. That’s how it works now, and it’s completely upside-down.

The income tax goes up to 37 percent, but the capital gains tax tops out at 20 percent. Biden proposes to tax them the same: if you make $50,000 from your job or $50,000 from selling a bunch of stock, it would be taxed at the same rate. It’s simple and logical, but it would mean a profound change from the status quo, in which the interests of rich people always come first.